News
U.S. media giant must overcome potentially stiff opposition to media concentration.
Rupert Murdoch’s 21st Century Fox on Thursday agreed an £11.7 billion (€14 billion) deal to acquire the 60.9% of U.K.-based TV and telecoms provider Sky that it does not already own.
The announcement comes after Sky revealed late last week that it had reached an agreement in principle to be taken over by Fox, news that sent Sky’s shares up almost 32%.
Thursday’s £10.75 per share offer represents a multiple of 11.4 on Sky’s EBITDA for the 12 months to 30 June, and a 40% premium on Sky’s share price on 6 December, the last day of trading before Sky received Fox’s initial offer.
The deal will be funded by a new bridge credit agreement between Fox and Goldman Sachs, Deutsche Bank, and JPMorgan Chase.
"The strategic rationale for this combination is clear. It creates a global leader in content creation and distribution, enhances our sports and entertainment scale, and gives us unique and leading direct-to-consumer capabilities and technologies," said Fox, in a statement.
In 2014, Sky became a pan-European triple-play provider by acquiring Fox’s stakes in Sky Germany and Sky Italy. Thursday’s deal sees Fox, which was already Sky’s biggest single shareholder with a stake of 39.1%, strengthen its presence in these mature markets, where the uptake of convergent services is accelerating, and demand for premium content is healthy.
The independent committee appointed to evaluate Fox’s bid has unanimously agreed to recommend the offer to shareholders.
"The independent committee also notes 21st Century Fox’s track record in growing businesses and its ability to continue the development of Sky across Europe, in a world where entertainment and distribution are converging. 21st Century Fox’s ownership will support the delivery of Sky’s strategy and long-term growth, ensuring that it remains at the forefront of Europe’s creative industries," said Sky deputy chairman Martin Gilbert.
Fox said it expects to complete the deal before the end of 2017; however, for that to happen it needs to win approval from competition regulators, which represents the biggest potential hurdle to the transaction.
Indeed, this the second time attempt by Rupert Murdoch to acquire Sky.
The media mogul’s former company, News Corp, in 2010 launched a £12 billion bid for the outstanding 60.9% stake in Sky – then called BSkyB – that it didn’t already own.
The deal initially encountered stiff opposition in some political quarters over concerns about media concentration, because News Corp also controlled Murdoch’s publishing empire, as well as his content assets.
Opposition strengthened to the point when News Corp abandoned its bid altogether, after the company’s now-defunct tabloid, the News of the World was revealed to have hacked the voicemails of politicians, celebrities, and even murder victims and their families.
The scandal forced News Corp to split in two. 21st Century Fox took ownership of the company’s media assets, including its 39.1% stake in Sky, while a new News Corp took control of the publishing business.
Despite the failed takeover, fresh rumours that Fox would have another go at buying Sky were sparked in January this year when Rupert Murdoch’s son and Fox CEO James Murdoch was appointed Chairman of Sky.
The fact that News Corp is now a separate entity from Fox could provide the degree of separation that Murdoch needs in order to win over competition regulators.
However, there is no escaping the fact that there are genuine concerns about the political influence that Murdoch already wields in the U.K. through his media empire; to say he is a divisive character would be to put it mildly.
Doubtless Sky and Fox know this; therefore it is probably no accident that there is no mention of the Murdoch name in either Sky or Fox’s announcements on Thursday.
Regulators won’t be won over that easily though, and just to make sure all their bases are covered, Thursday’s deal includes a £200 million breakup fee payable by Fox in the event that its bid is blocked.
